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"In 2013, we saw the 30-year bull market in bonds wind down and stocks soar, with a stronger recovery since 2009 than in the last five market cycles"

BofA Merrill Lynch Global Research today released its outlook for the
markets in 2014, calling for strong U.S.-led economic growth, higher
yields and solid U.S. stock gains that are lower than in 2013 but higher
than consensus. Meanwhile, a rising U.S. dollar and rising rates, as
well as rising rate volatility, will have consequences for markets
around the world as credit cycles diverge.

At the annual BofA Merrill Lynch Year Ahead outlook news conference held
today in New York, analysts summarized the macro story of the year as
inherent upside risk in a vigorous bull market for the U.S. dollar and a
low, but rising interest rate environment.

“In 2013, we saw the 30-year bull market in bonds wind down and stocks
soar, with a stronger recovery since 2009 than in the last five market
cycles,” said Candace Browning, head of BofA Merrill Lynch Global
Research. “As we move into 2014, we expect this trend to moderate but
continue forward even with Federal Reserve tapering mid-year.”

Bearish on rates and commodities, long on volatility and bullish on real
estate and equities, the BofA Merrill Lynch team expects a shift to
lower liquidity/higher growth in 2014 and overall positive asset
returns. Rejecting the outright bear market case for equities, analysts
remain optimistic about stock market gains in the near term as
high-quality, U.S. based companies with global exposure unleash value.
However, they advise to move to middle ground, shedding the extremes of
high yield or high growth stocks as long-term trends in the great global
rotation continue to play out.

The BofA Merrill Lynch Global Research team made the following 10 macro
calls for the year ahead:

The Standard and Poor’s 500 Index is expected to rise to 2000 and the
MSCI All-Country World Index to reach 444 by year-end. Gains in the
year ahead imply a price return of approximately 11 percent, with
modest earnings growth of 7 percent, driven by higher sales and
additional buybacks.

U.S. and global economic GDP growth is expected to accelerate in 2014,
to 2.6 percent and 3.5 percent, respectively. The U.S. economy is
expected to expand in the second half of the year at a 3 percent rate,
driven by the end of fiscal austerity and pent-up demand for capital
goods. Slow growth of 0.8 percent is expected in Europe as credit and
fiscal policy remains tight. China’s GDP growth will marginally
decline from 7.7 percent in 2013 to 7.6 percent in 2014, but remains
highest among the leading emerging market economies, while Japan is in
transition, with another year of 2 percent growth.

U.S. rates to head higher, with 10-year Treasury yields expected to
reach 3.75 percent. A rise in the Treasury yields by 85 basis points
will have consequences for markets around the world, likely resulting
in an increased interest rate differential in favor of the U.S.
dollar, especially against the euro, which is expected to decline to
1.25 by year end. In addition, rising rate volatility may surprise.
Interest rate volatility is expected going into 2014, with a target of
100 for the Merrill Option Volatility Expectations (MOVE) Index.
Market complacency over the timing and impact of Federal Reserve
tapering could leave some investors unprepared for rising volatility
in rates. Long vol positions in U.S. rates and dollar and long swap
spread positions are favored as insurance against higher interest rate
volatility.

Challenging year for fixed income. Tightening spreads and rising rates
could make total returns challenging for fixed income investors.
Corporates are favored over government bonds. High-yield bonds are
expected to produce positive returns, though about half the gains seen
in 2013. U.S. high-yield bonds may offer the best potential, with a
total return of 4 percent to 5 percent. Among investment-grade bonds,
Europe should lead the way with a return of up to 2 percent, followed
by the U.S. at 1.5 percent, while Asia and emerging markets may suffer
negative returns.

Global inflation rate to remain stable at close to 3 percent. After
surging in 2011, inflation has fallen in almost every country, with
the exception of those facing foreign exchange fueled price increases,
namely Japan, Brazil, India and Turkey. Inflation in emerging markets
is expected to increase from 4.7 percent in 2013 to 5.3 percent in
2014.

The U.S. housing recovery continues. The ongoing strengthening of the
U.S. economy is expected to boost real estate values by another 5
percent in 2014.

Oversupply to contain commodities pricing. Global commodities prices
will be contained in 2014 by oversupply in key sectors, especially
global oil and grain, a strong U.S. dollar and modest global economic
growth. The Merrill Lynch Commodity Index (MLCX) is expected to
decline by 1.6 percent, less than the steep 5 percent decline in 2013.
Gold values are expected to drop to $1,250 an ounce in the first
quarter, before rebounding to normal levels later in the year. Other
metals not in surplus, including zinc, platinum and industrial metals
could outperform.

“ThreeBs” corroborate evidence of great rotation. Higher bond
yields, a higher “buck” and higher bank stocks (a leading barometer of
domestic demand) in 2014 will corroborate evidence of a great
rotational shift in the markets: outperformance of real estate over
commodities, stocks over bonds, developed markets over emerging
markets, small cap over large cap, high yield over investment grade
and cyclical over defensives. The shift will continue in 2014, with
Fed tapering causing little, if any, pause in the process.

Institutional reverse rotation. While the attractiveness of
equities lures retail investors away from bonds, institutional
investors, including insurers, sovereign wealth funds, central banks
and even U.S. pension funds, are expected to take part in a “reverse
rotation” – selling stocks and buying bonds.

The BofA Merrill Lynch Global Research franchise covers nearly 3,500
stocks and over 1,100 credits globally and ranks in the top tier in many
external surveys. Most recently, the group was named Top Global Research
Firm of 2013 by Institutional Investor magazine for the third
consecutive year; No. 1 in the 2013 Institutional Investor All-Asia
survey for the third consecutive year; No. 1 in the Institutional
Investor 2013 Emerging Market & Fixed Income Survey; No. 2 in the 2013
Institutional Investor All-America survey; No. 2 in the All-Japan survey
for the second consecutive year; No. 2 in the 2013 All-Latin America
survey; No. 2 in the 2013 All-China survey; and No. 3 in the 2013
Institutional Investor All-Europe survey. The group was also named No. 2
in the 2013 Institutional Investor All-America Fixed Income survey for
the second consecutive year and No. 3 in the 2013 All-Europe Fixed
Income Research survey.

Bank of America

Bank of America is one of the world's largest financial institutions,
serving individual consumers, small- and middle-market businesses and
large corporations with a full range of banking, investing, asset
management and other financial and risk management products and
services. We serve approximately 51 million consumer and small business
relationships with approximately 5,200 retail banking offices and
approximately 16,200 ATMs and award winning online banking with 30
million active users and more than 14 million mobile users. Bank of
America is among the world's leading wealth management companies and is
a global leader in corporate and investment banking and trading across a
broad range of asset classes, serving corporations, governments,
institutions and individuals around the world. Bank of America offers
industry-leading support to approximately 3 million small business
owners through a suite of innovative, easy-to-use online products and
services. The company serves clients through operations in more than 40
countries. Bank of America Corporation stock (NYSE: BAC) is listed on
the New York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global
banking and global markets businesses of Bank of America Corporation.
Lending, derivatives, and other commercial banking activities are
performed globally by banking affiliates of Bank of America Corporation,
including Bank of America, N.A., member FDIC. Securities, strategic
advisory, and other investment banking activities are performed globally
by investment banking affiliates of Bank of America Corporation
(“Investment Banking Affiliates”), including, in the United States,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a
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